Is Pension Income Exempt in Ohio & on Federal Taxes?

When you retire, your pension provides you with an income, generally at a lower gross rate than you had when you were working. Though this is the case, some of the taxes to which you were subject when you were working, like Social Security and Medicare, do not apply if you are on a pension. Whether your pension is subject to income taxes, which it is in Ohio, depends on your state and your pension.

Pensions and Taxation

When you are working, you are subject to federal and state income tax -- if your state has one -- and Medicare and Social Security taxes. Once you are retired, this changes. Social Security and Medicare taxes are no longer taken from your earnings. Federal income taxes are still taken but, even in states with an income tax, some states exempt pension income and others give you a tax credit to offset the impact of the income taxes. Ohio offers a tax credit to retirees.

Ohio Income Tax

Your pension is exempt from Ohio income taxes if your federal adjusted gross income is less than $11,600, you are filing single and you are 65 and older; you are married, filing jointly, are 65 or older and your federal adjusted gross income is less than $13,200; the tax you owe is equal to or less than the tax credit; or your exemption amount is the same as, or more than, your Ohio adjusted gross income. If you do not meet these criteria, your income is subject to tax, but you are eligible for a tax credit of no more than $200 -- $250 if you are 65 or older -- to offset the tax.

Types of Pensions

Certain federal pensions are entirely exempt from state taxes, in accordance with federal law. Under federal law, only a certain amount of your Social Security benefit is subject to income taxes. Ohio exempts Social Security benefits. Railroad retirement pensions, by federal law, cannot be taxed by the states. Military pensions can be taxed in Ohio, because Ohio taxes other pensions. You are eligible for the tax credits on your military pension.

Residency and Pensions

If you are an Ohio resident collecting a pension, but you spend part of the year living somewhere else, you are liable for Ohio income tax on your full retirement pay regardless of where you worked to get your pension. If you are an out-of-state resident who spends part of his time in Ohio during the year, you do not pay Ohio taxes, even if you worked in Ohio to get your pension. If you are a part-year resident, you pay taxes on the pension you received when you lived in Ohio.